One of the leading candidates to become Mayor Bloomberg’s schools chancellor dropped out of the running yesterday to run the Philadelphia schools.

Paul Vallas, former CEO of Chicago’s public schools, has signed on for a five-year stint in the City of Brotherly Love, a close ally said.

Among other reported top contenders, Cleveland schools chief Barbara Byrd-Bennett recently said she has not interviewed for the top spot.

City Hall has floated the name of Donna Shalala, president of University of Miami, as a dream candidate, a source said. A Shalala spokeswoman said the former Hunter College president was out of the country and could not be reached for comment.